Underused Housing Tax
In Budget 2021, the government announced that it would introduce a national, annual 1-per-cent tax on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused. The Underused Housing Tax (UHT) took effect on January 1, 2022.
In response to suggestions from Canadians about the implementation of the UHT, the government is now proposing to make several changes to the UHT to help facilitate compliance, while ensuring that the tax continues to apply as intended. These changes are described below.
Draft legislative and regulatory proposals relating to these proposed changes will be released for consultation in the draft legislation section of the Department of Finance website. Following a consultation period, the government intends to bring forward legislation for consideration by Parliament.
Elimination of Filing Requirement for Certain Owners
Currently, every person that, as of December 31 of a calendar year, is an “owner” of residential property in Canada, other than an “excluded owner”, is required to file a UHT return for the calendar year in respect of the property.
With limited exceptions, if an owner of a residential property is a corporation or is the owner of the residential property on behalf of a partnership or as a trustee of a trust, the owner must file an annual UHT return in respect of the property. If the entity is substantially or entirely Canadian, however, they may be eligible to claim an exemption from the UHT in their UHT return. Specifically, exemptions may be claimed by:
- A “specified Canadian corporation”, which is generally a Canadian corporation having less than 10 per cent of its votes or equity value owned by foreign individuals or corporations;
- A partner of a “specified Canadian partnership”, which is generally a partnership whose partners are exclusively “Canadian”; or,
- A trustee of a “specified Canadian trust”, which is generally a trust whose beneficiaries are exclusively “Canadian”.
To reduce the UHT compliance burden in relation to these Canadian entities, the government is proposing to make “specified Canadian corporations”, partners of “specified Canadian partnerships” and trustees of “specified Canadian trusts”, “excluded owners” for UHT purposes. As excluded owners, these owners would no longer have UHT reporting obligations.
The government is also proposing to expand the definitions “excluded owner”, “specified Canadian partnership” and “specified Canadian trust” to provide UHT filing and tax relief in respect of a broader range of Canadian ownership structures.
These changes would apply in respect of 2023 and subsequent calendar years.
Reduction to Minimum Failure to File Penalties
Currently, the minimum penalty for an individual, who is required to file a UHT return for a residential property but who fails to do so by the filing deadline, is $5,000 per failure. The minimum penalty for a corporation that fails to file by the filing deadline is $10,000 per failure.
The government is proposing to reduce these minimum penalties to $1,000 for individuals and $2,000 for corporations, per failure.
These changes would apply in respect of 2022 and subsequent calendar years.
Exemption for Certain Employee Accommodations
The government is proposing to introduce a new UHT exemption for residential properties held as a place of residence or lodging for employees. This exemption would be available in respect of residential properties located anywhere in Canada other than in a population centre within either a census metropolitan area or a census agglomeration having 30,000 or more residents.
This exemption would apply in respect of 2023 and subsequent calendar years.
Additional Technical Changes
The government is also proposing to introduce other UHT changes of a more technical nature to ensure the UHT applies in accordance with the policy intent and to ensure uniformity of tax statutes. For example, these changes would:
- provide that unitized (‘condominiumized’) apartment buildings are not “residential property” for UHT purposes, effective in respect of 2022 and subsequent calendar years; and,
- ensure that an individual or a spousal unit can claim the UHT “vacation property” exemption for only one residential property for a calendar year, effective in respect of 2024 and subsequent calendar years.
Additional Time to File 2022 UHT Returns
The deadline for filing the inaugural UHT returns (for the 2022 calendar year) was April 30, 2023. However, on March 27, 2023, the Canada Revenue Agency announced that it would waive penalties and interest provided UHT returns are filed or the UHT is paid by October 31, 2023, effectively giving owners six more months to file.
On October 31, 2023, the Minister of National Revenue announced that this transitional filing relief would be extended by six more months, giving owners until April 30, 2024, to file their 2022 UHT returns. This additional extension is intended to ensure that every effort has been made to inform property owners and help them meet their UHT filing obligations.
UHT returns for the 2023 calendar year will also need to be filed by the normal deadline of April 30, 2024, to avoid penalties and interest.
